Young adults living with their parents hits a 75-year high

Pity both parents and the American housing market: Millennials are moving back home with their folks -- and they aren’t moving out.

Almost 40 percent of young adults lived with their parents, step-parents, grandparents and other relatives last year, or the highest point in 75 years, according to data from real estate analytics company Trulia. The only time in U.S. history when the share has been higher was in 1940, when the U.S. economy was regaining its footing from the Great Depression and the year prior to the country’s entry into World War II.

How can young adults transition back to living with their parents?

The number of millennials who fail to leave the nest has been climbing for the past 10 years, with the trend starting shortly before the Great Recession of 2008 but accelerating during the downturn and the recovery. The phenomenon is tied to a few factors, ranging from society shifts to economic headwinds. For one, Americans are delaying marriage and starting families. But the bigger issue may be the triple whammy of low wages, student debt and rapidly escalating rents.

“Even though unemployment rates have decreased and the economy is picking up, we know wages are stagnant, so this will impact this generation of homebuyers,” making it more challenging to save for a down payment, said Cheryl Young, senior economist at Trulia. “The millennials are getting married later and having fewer children, and that’s particular to this generation.”

The research echoes findings from the Pew Research Center earlier this year, which found that 32.1 percent of 18- to 34-year-olds lived at their parents’ homes in 2014, exceeding the 31.6 percent of young adults who were married or living with a partner in their own household. That marked a tipping point for the first time in modern history, since the norm for decades was for young adults to push out on their own after high school or college.

The last decade hasn’t been kind to America’s youngest generation of adults. They came of age just as the economy fell into a recession, which caused higher unemployment rates and tighter credit markets. While it was tougher to qualify for a mortgage following the recession, millennials were also taking on increasing amounts of student debt.

More than 75 million millennials struggling with student debt

The typical undergraduate student borrower had $30,100 in student loan debt in 2016, a surge of 53 percent in just one decade, according to the Institute of College Access and Success.

“For most people who take the traditional trajectory, you might rent, then you are ready to buy a home,” Young said. “But if people are living with relatives, it means they aren’t even able to rent. The rental prices are very high in some urban areas, and those are barriers for people to move out.”

That’s created a perfect storm for parents and the real estate market: Homeownership rates for Americans in their 20s and 30s have plummeted, according to Harvard’s Joint Center for Housing Studies. It’s likely the impact will only worsen in the next few years since some young graduates have deferred their loan repayments, and those grace periods are coming to an end, the report predicted.

Slightly more than 35 percent of Americans under the age of 35 own their own homes, a decline of 8 percentage points from 2004, Pew found in a study published earlier this month. The decline was sharpest for lower-income Americans, as well people who are unmarried.

Still, Young notes that many millennials are buying homes. Because their generation is currently the largest among all age groups, millennials still make up the biggest share of first-time home buyers, even after accounting for the living-at-home trend. One challenge for first-time home buyers is the lack of starter homes, or lower-priced homes that tend to attract first-time home buyers, Young noted.

The living-at-home trend has been closely watched by the real estate industry because the formation of new households -- when young adults rent their own apartments or buy their own homes -- is part of the engine that drives the housing market. It also helps boost the economy as a whole, given that those new householders need to buy everything from furniture to kitchenware.

Baby boomers may feel a culture gap when their adult kids move back home. After all, when they came of age in the 1970s, only about 25 percent of their cohort living at home, or close to the lowest share since 1940.